The year 2024 is bound to be interesting for Canadian stocks. The fact is every year is interesting. The market will have some dips, dives, rallies, and everything in between. No one can really control the market.
Invest in stocks like a business owner
You can however control your portfolio and the stocks you choose to hold. See, an investor buys a stock as a stake in a business. They hold that business because it creates value for its customers and (hopefully) the world in general.
Business owners think long term. They think less about the market and more about how the business creates value. Over long periods, businesses that build value tend to become stocks that create value.
If you want to build long-term value in your portfolio, here are three Canadian stocks (businesses) that could be worth holding for a decade or more.
A stock heading towards the stars
Constellation Software (TSX:CSU) is one of the best performing stocks in Canada over the past 15 years. However, with a market cap of $75 billion, some investors worry about its potential to multiply at the same rate over the coming years.
Its recent spin-out, Topicus.com (TSXV:TOI), could be in a better position to replicate Constellation’s strong returns. It only has a market cap of $8.1 billion. Constellation was sitting with an $8 billion market cap in 2015. Since then, it has earned a 1,084% return.
Topicus is replicating Constellation’s vertical market software acquisition strategy. The differentiator is that its market is focused on Europe. It also happens to be growing organically a bit quicker than Constellation.
The company has a good balance sheet, a large acquisition market, resilient software businesses, and a smart team of capital allocators. These dynamics are likely to help propel strong long-term returns into the future.
A serial acquirer with steady cash flows
Another stock for the next 10 years is FirstService Corp. (TSX:FSV). It may not be a hot tech stock like Topicus.com. However, it has delivered solid returns for shareholders.
Over the past 5 and 10 years, FSV stock has returned 129% and 583%. That represents respective annual compounded total returns of 18% and 25%.
FirstService has a leading multi-family and residential property management platform. This tends to provide steady recurring fee income and stable cash flows.
It has taken that cash and invested in a variety of property improvement, renovation, and restoration businesses. The outsourced property service provider has several leading brands across North America.
The home property improvement market is an extremely fragmented market, so it has no shortage of acquisition opportunities. It just acquired a roofing contracting platform. This should provide another accretive leg of growth opportunities ahead.
An industrial stock with a big market
Hammond Power Systems (TSX:HPS.A) is the smallest of these three with a market cap of $977 million. The company has been growing rapidly, and so has its stock. It has risen 1,224% in the past five years. That type of growth is not likely sustainable, but it still has strong upside.
Hammond manufactures and sells specialized power transformers for a wide array of industries (including electric vehicle charging, manufacturing, and data centres).
With a growing mix of products, a wide geographic reach, improved manufacturing capacity, and exposure to growth sectors, Hammond could continue to deliver solid 10-year returns for the patient investor.